Here, you can summarize exposure according to specific criteria. You might, for example, use one hedge plan to manage those exposures that represent a certain product group. The list of hedge plans provides an initial overview of all the hedge plans already created with their exposures and hedging relationships. By double-clicking on any plan, you get to the details. From there, you can use the Hedge Management pushbutton to get to the exposures and hedging relationships.

To create a new hedge plan, choose the Create button and enter the hedge plan details. Besides the ID and name of the plan, you enter the start and end dates and also the risk category. The start date of the hedge plan will normally be the valid from date of the exposure that begins first. Similarly, the end date is the date on which the last exposure affects net income. In the case of a forecasted sale, this would be the (anticipated) receivables date; in the case of a forecasted purchase, it would be the date on which the receivable for the original purchase was posted. For all exposures in the hedge plan, the risk category uniquely determines the risk to be hedged - the exchange rate risk and the interest rate risk.

With the interest rate risk, you must also maintain the nominal amount and the currency of the interest rate instrument. You can also select the indicator "Single Hedge". This way you can set restrictions so that the hedge plan contains only one hedge object and all exposures are assigned to this object. The hedge object then corresponds to the interest rate instrument to be hedged and the exposure corresponds to the individual cash flows of the interest rate instrument. All the exposures are part of a single hedge object, and all cash flows belong to the same interest rate instrument. If you do not select the indicator, each exposure will represent an individual hedge object that must be hedged separately - as is also the case with exchange rate risk.

You can create the following exposure categories:

Exposures represent cash flows or positions that can be hedged against a specific risk. A hedge object is generated as soon as you as you decide to hedge a specific exposure. The hedge object initially indicates only the intention to hedge an exposure. The actual hedging takes place later in the hedging relationship tab page.

An exposure consists of one or more transactions, the sum of which equals the value (volume) of the exposure. A transaction should reflect a real business transaction. The transaction is defined by its category and activity. The transaction category defines which category a transaction is assigned to according to FAS 133 / IAS 39 (for example, forecasted transaction or firm commitment). The transaction activity serves to further specify the category. This could be the decision as to whether a forecasted transaction is a purchase or a sale, for example.

To create a new transaction, choose the Create button and enter the appropriate details. There, as well as the transaction category and transaction activity fields, you also maintain the transaction ID, the nominal amount, and the transaction currency. Other important entries are the Valid from date and the Fixing Date. The Valid from date is the date on which the transaction first becomes valid. This can be either the start date of the transaction or the date on which the transaction was forecasted. The start date of the transaction must not be before the date on which the hedge plan becomes valid. In the case of an individual hedge object with one interest rate instrument, the valid-from date corresponds with the start date of the interest rate instrument for all entered exposures/transactions. The "Fixing Date" describes the expiry date of the transaction or exposure. This is the latest date on which profit and loss can be affected. If you have already entered an exposure (consisting of at least one transaction), you can choose the Exposure field to create a new transaction for the exposure. Alternatively, you can generate a new exposure when you create the transaction.

Using the hedging target ratio, you can define a target value to be hedged (in percent) according to your risk guidelines. The actual ratio shows the actual level of hedging. The system calculates the actual ratio as soon as you incorporate a derivative financial instrument, or part thereof, as a hedging instrument in a hedging relationship. The actual ratio is defined as that portion of an exposure (in percent) that is hedged at a given time.

You can either enter the transaction number directly in the Derivative field, or you can use the F4 Help to choose from the list of transactions. You enter the derivative volume that you wish to use for the hedge in the Des. Volume Deriv field. You also enter the date from which the hedging relationship is to take effect, and the hedging strategy to be used later for the effectiveness test. The hedging strategy defines all the parameters that are required in order to determine the effectiveness. Hedging strategies are defined once in Customizing and are then available for selection in the application. The only selection strategies that you can choose from are those that are also permissible for the derivatives to be valued. In the case of options, for example, the only hedging strategies available for selection will be those with calculation categories that are also suitable for options.